Facts of the Case

  • The petitioner, Swift Securitas Private Limited, filed a writ petition seeking refund of ₹20,87,646/- along with interest under Section 244A.
  • The petitioner also permitted adjustment of any legitimate outstanding demand before refund.
  • The Income Tax Department refunded ₹16,20,317/- after adjusting ₹4,67,329/- against pending demands.
  • Subsequently, it was discovered that two demands (₹47,040/- and ₹51,280/-) had been wrongly adjusted despite proof of prior payment.
  • The department further stated that a substantial outstanding demand of ₹1,11,61,190/- for AY 2019-20 existed.

Issues Involved

  1. Whether the Income Tax Department was justified in adjusting already paid tax demands against refund.
  2. Whether the petitioner was entitled to the remaining refund along with interest under Section 244A.
  3. Whether rectification under Section 154 could be invoked to adjust refund against a subsequent outstanding demand.

Petitioner’s Arguments

  • The petitioner claimed entitlement to full refund along with statutory interest under Section 244A.
  • It contended that certain adjusted demands were already discharged, supported by challans.
  • It accepted lawful adjustment of valid outstanding dues but objected to erroneous adjustments.

Respondent’s Arguments

  • The department admitted that erroneous adjustments occurred due to oversight.
  • It submitted that after correction, a balance amount of ₹5,41,187/- was payable.
  • It further argued that this amount should be adjusted against the outstanding demand of ₹1,11,61,190/- under Section 154.

Court’s Findings

  • The Court took note of the admitted error in adjustment of already paid demands.
  • It accepted the department’s submission regarding the remaining payable amount.
  • The Court observed that the petitioner had no objection to adjustment of the balance refund against outstanding demand.

Court Order / Decision

  • The Delhi High Court directed the department to adjust ₹5,41,187/- against the outstanding demand of ₹1,11,61,190/- under Section 154.
  • The writ petition was disposed of accordingly.

Important Clarification

  • Even where refund is due, the department retains authority to adjust such refund against existing tax demands.
  • However, no adjustment can be made for demands already paid, and such errors must be rectified.
  • Section 154 serves as a valid mechanism for correcting such mistakes and facilitating lawful adjustments.

Link to download the order - https://delhihighcourt.nic.in/app/case_number_pdf/2020:DHC:3647-DB/MMH21122020CW56082019_171121.pdf

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